Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed, 564 pages, 2009, Penguin Press

A Book Review written by Rich Marino

A friend of mine who works for the New York Times sent me an email and told me that the newspaper planned to review a book that I might find interesting entitled: Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed, a trustee with the Brookings Institution. So, I picked up a copy of it at the airport book store before I came limping back to London.

Though it’s certainly not an academic treatise, it’s very well written, very interesting and very timely indeed. The lords of finance which Ahamed refers to in the title were the four central bankers who were in office following World War I, and according to the author’s subtitle, they were also responsible for the Great Depression. Accordingly, they were Benjamin Strong of the Federal Reserve Bank of New York, Montagu Norman of the Bank of England, Emile Moreau of the Banque de France, and Hjalmar Schacht of the Reichsbank.

Ahamed claims that by 1930 and due to a succession of blunders based on economic inflexibility from the above four central bankers, the world’s capitalist system was essentially brought to its knees: “Industrial production had fallen 30 percent in the United States, 25 percent in Germany and 20 percent in Britain. Over 5 million men were looking for work in the United States, another 4.5 million in Germany and 2 million in Britain”. Not unlike the economic turmoil of today, the book ignites the same insecure feeling all of us share presently. While reading it, you’re forced to question the current policies of the world’s central banks, and for me personally, I remembered Paul Krugman’s New York Times article ofNovember 26, 2008 where he featured the essay: “The Great Slump of 1930” written by John Maynard Keynes. According to Krugman:

“This essay comes from Keynes pre-General Theory; he was groping toward an integrated framework for thinking about depressed economies, and not quite there yet. But its observations on the crisis at hand remain stunningly insightful, and fit current events all too well.”

‘This is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time—perhaps for a long time’…John Maynard Keynes

Apparently, “the delicate machine” was a reference by Keynes to the global economy. It’s also important to remember that each one of the four central bankers was a larger-than-life character who was steadfast in fulfilling the dictates of his respective nation. Ahamed further argues that the underlying blame for a large part of the economic downturn of the 1930s rests with the Allies’ insistence that Germany pay in full their World War I war reparations, but in the same breath, the author does give credit to Montagu Norman of Britain who unconvincingly made the case to his government that in essence the sheer size of Germany’s war reparations would force a collapse of the German economy, which it did, and at the same time inadvertently paved the way for the rise to power of the Nazi Party.